Federal Milk Marketing Orders (FMMOs) were created in the mid-1930s to bring order to milk marketed in the U.S. At the time, milk was primarily consumed in fluid form, which is classified in FMMOs as Class I for pricing purposes. As recently as 1960, 65.4% of all milk priced through FMMOs was classified as Class I milk.

According to the USDA, the national corn crop in 2016 was in the neighborhood of 15.2 billion bushels; prices are hovering somewhere around $3.50 per bushel, which is much less than those prices we saw in 2012 (an average of $6.89 per bushel), but much more than what we paid in 2005 ($2 per bushel).

Rewind your clock to December 4, 2011. The prior week the USDA released its preliminary Agricultural Prices report for November. According to this report, the preliminary milk-feed ratio for November was 1.80. Following the headline “November milk-feed ratio a disappointing 1.80,” an eminent dairy economist commented, “The milk-feed profitability index for November is none too rosy. It’s not until the ratio reaches 3.0 that it is considered profitable to buy feed and produce milk.”

Editor’s note: The author submitted this opinion piece after original publication in Farm and Dairy and subsequent compliments for “sticking out” his neck. All-natural eggs. Naturally raised chickens. Natural tofu. If “natural” is so good, then why doesn’t Ford claim a natural pickup, or Apple an all-natural iPhone? Maybe it’s because there is nothing natural about a Ford pickup or an iPhone; yet they are amongst some of the best things ever made for humankind (although some Chevy owners might disagree with the Ford pickup claim … ).

At this time of the year, I wish I could bring you some good news. I am afraid, however, that what has been a modest recovery for our dairy farms starting in late spring is about to end. Most dairy farms, still under the shock of the 2009 financial disaster, now barely hold their heads above water. What’s next? Feed prices have gone through the roof, and the November decline in milk prices can be the initial signal for further price declines despite the recent surge of dairy product prices on the cash and futures markets. Tight financial management will be the norm for the first half of 2011. First, let us look at feed prices. I used the software SESAME™ that we developed at Ohio State to price the important nutrients in dairy rations to estimate breakeven prices of major commodities and to identify feedstuffs that currently are significantly underpriced.